R. v. Fogazzi, 92 DTC 6421, [1992] 2 CTC 321 (Ont. C.J. (G.D.)), rev'd 93 DTC 5183 (Ont. CA)

Sheppard, J.:—The accused are charged with income tax evasion. The case raises issues which Crown counsel acknowledged are “novel”. The Crown alleges that the accused, particularly Frank Fogazzi, misappropriated money entrusted to them for investment purposes. According to the agreed statement of facts, Frank Fogazzi received a single sum of money from two brothers in Italy to invest on their behalf and that he subsequently converted the money to his own use.

Taxation of a receipt: from an ongoing illegal activity as opposed to an illegal act.

The accused, Frank Fogazzi, pleaded guilty to count number 6 in a 12-count indictment. Count number 6, as amended, alleges that the accused, Frank Fogazzi, wilfully (emphasis added) evaded the payment of federal taxes in the amount of $137,118.93 imposed under the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the"Act") by failing to report $337,713.41 of income in his income tax returns filed for the taxation years 1979 to 1984 inclusive, contrary to paragraph 239(1)(d) of the Act. Mr. Fogazzi signed the agreed statement of facts previously referred to and pleaded guilty to the charge contained in count number 6. Although Mr. Fogazzi had been represented by counsel in previous court appearances, he was not so represented when he made his plea. This is regrettable because difficult issues were presented to the Court for determination, issues that have given the courts in Canada, England, and the United States of America, and learned authors writing on the principles of taxation considerable difficulty from the time that income tax, as we know it today, was first levied by governments. One such issue is as stated in the title above: that gains realized from an ongoing illegal activity are property subject to tax is now established tax law. For example, gains from an illegal bookmaking operation were held to be property subject to tax in The Queen v. Ronald S. Christensen, 84 D.T.C. 6184, a decision of the British Columbia Court of Appeal affirming the decision of the Supreme Court of British Colum- bia, 83 D.T.C. 5359. Profits from the operation of a call-girl organization were held to be properly subject to tax in M.N.R. v. Olva Diana Eldridge, [1964]

C. T.C. 545, 64 D.T.C. 5338, a decision of the Exchequer Court of Canada (although the issue in the Eldridge case was the claim by the taxpayer to deduct expenses incurred to earn such income). Cattanach, J. said in Eldridge at pages 551-52 (D.T.C. 5342):

At this point I would mention it is abundantly clear from the decided cases that earnings from illegal operations or illicit businesses are subject to tax. The respondent, during her testimony, remarked that she expressed the view to the officers of the Taxation Division that it was incongruous that the government should seek to live on the avails of prostitution. However, the complete answer to such suggestion is to be found in the judgment of Rowlatt, J. in Mann v. Nash, [1929-1932] 16 T.C. 523, where he said at p. 530:

It is said again: Is the State coming forward to take a share of unlawful gains? It is mere rhetoric. The State is doing nothing of the kind; they are taxing the individual with reference to certain facts. They are not partners; they are not principals in the illegality, or sharers in the illegality; they are merely taxing a man in respect of those resources. I think it is only rhetoric to say that they are sharing in his profits, and a piece of rhetoric which is perfectly useless for the solution of the question which I have to decide.

McLachlin, J. (as she then was) said in Christensen, supra:

It has frequently been held that the proceeds of an illegal business are income which is taxable under the Income Tax Act. The taxing statute is to be interpreted as it reads and not as a moral document.

The fact that the taxpayer realized his gain, be it money or money's worth, from an illegal business activity does not affect the quality of the receipt as income.

A much more difficult issue is presented where the taxpayer realizes his gain not from an ongoing illegal activity but from an illegal act or series of illegal acts. This was the case in The Queen v. Poynton, [1972] C.T.C. 411, 72

D. T.C. 6329, 9 C.C.C. (2d) 32, 29 D.L.R. (3d) 389, a decision of the Ontario Court of Appeal, and in Howard Stanley Buckman v. M.N.R., [1991] 2 C.T.C. 2608, 91 D.T.C. 1249, a decision of the Tax Court of Canada. I will be reviewing the Poynton and Buckman cases in detail later.

The issues present in this case are:

1. On the facts of this case, does the misappropriated amount of money have the quality of income? Is it income! Is it income from a source!

2. If it is, in what taxation year is the accused, Frank Fogazzi, taxable: in the year in which he received the money or in the year during which the facts establish that he converted the money to his own use? and

3. What principle of law enables the Crown when charging a taxpayer with evasion of tax to charge that taxpayer in one count in the indictment with having evaded the payment of tax on income received over a number of taxation years? Related to this issue are the following issues:

(a) Amending the indictment.

(b) The meaning of "wilfully" in paragraph 239(1)(d) of the Act.

Crown's position

The Crown's position regarding the misappropriated money is:

. . . that these moneys were income to the accused either as business income and/ or as income from a non-specifically enumerated source under subsection 3(a) of the Income Tax Act.

Counsel for the Crown argued that:

. . . the courts have made a policy decision that proceeds obtained by theft is [sic] taxable under section 3 as an unenumerated source of income [emphasis added]; that where a sic] if a thief steals from a bank once that's his income irrespective of whether the fact he's in the business of stealing . . .

and further:

So, that if a lawyer steals once from his client—once, not several times—that would be income from his business as a lawyer.

Counsel for the Crown strongly rested his case on Poynton and Buckman, supra. Counsel put his principal submission this way:

In my submission Poynton as applied by Buckman holds that where an individual engaged in business [emphasis added] misappropriates funds from someone who has entrusted him with the funds in the course of that business [emphasis added], those funds are taxable as a receipt in the hands of the taxpayer's [sic] income from a business, irrespective of whether the theft occurs once or numerous times.

With respect to learned counsel, that is not the ratio decidendi of the Poynton case and as we shall see Buckman followed Poynton.

The first issue:

On the facts of this case, does the misappropriated amount of money have the quality of income? Is it income? Is it income from a source?

[Emphasis added.]

Analysis of Poynton and Buckman

The Poynton, supra, case merits close analysis because it is fundamental to the Crown's position and because it was heavily relied on by the Tax Court of Canada in Buckman, supra. Poynton was assessed for income tax on amounts of money and benefits received from" kickback" arrangements which he made with persons who were subcontractors to his employer, a general building contractor. Poynton argued that such amounts were not properly subject to tax in his hands; that they did not have the quality of income because his right to these amounts was not “absolute and under no restriction, contractual or otherwise, as to its disposition use or enjoyment". (This principle of tax law is often referred to as "the Robertson rule”, see Kenneth B.S. Robertson Ltd. v. MNR, [1944] Ex C.R. 170, [1944] C.T.C. 75, 2 D.T.C. 655, at page 182 (93 C.T.C., 662 D.T.C.). The Ontario Court of Appeal rejected that argument. Evans, J.A. writing on behalf of the court said at page 43:

I am of the opinion that there is no difference between money and money's worth in calculating income. They are both benefits and fall within the language of sections 3 and 5 of the Act, being benefits received or enjoyed by the respondent in respect of, in the course of, or by virtue of his office or employment. I do not believe the language to be restricted to benefits that are related to the office or employment in the sense that they represent a form of remuneration for services rendered. If it is a material acquisition which confers an economic benefit on the taxpayer and does not constitute an exemption, e.g., loan or gift, then it is within the all-embracing definition of section 3.

[Emphasis added.]

Section 3 of the pre-1972 Act (the Act being considered in Poynton, supra), provided:

3. The income of a taxpayer for a taxation year for the purpose of this part is his income for the year from all sources inside or outside Canada and, without restricting the generality of the foregoing, includes income from the year from all

(a) businesses

(b) property, and

(c) offices and employments

The definition is an inclusive definition. It provided that a taxpayer's income for a taxation year was his income from all sources. The section did not define “income” nor did it define "source". The pre-1972 Act went on in section 5 to provide rules for the computation of income from an office or employment. Section 5 provided:

5 (1) Income for a taxation year from an office or employment is the salary, wages and other remuneration, including gratuities, received by the taxpayer in the year plus

(a) the value of board, lodging and other benefits of any kind whatsoever. . . received or enjoyed by him in the year in respect of, in the course of, or by virtue of the office or employment;

The post-1971 Act, under which the accused are charged, follows the same pattern except that the computation of income is determined in accordance with specific statutory directions contained in sections 3 and 4. Section 5 provides”. . . a taxpayer's income for a taxation year from an office or employment is the salary, wages and other remuneration, including gratuities, received by him in the year”.

Section 6 goes on to provide:

6. (1) There shall be included in computing the income of a taxpayer for a taxation year as income from an office or employment such of the following amounts as are applicable:

(a) value of benefits.— the value of board, lodging and other benefits of any kind whatever received or enjoyed by him in the year in respect of, in the course of, or by virtue of an office or employment.

Whereas in the pre-1972 Act, a taxpayer's income was defined to be his income from all sources including the specified sources, the post-1971 Act (the present Act) directs the taxpayer to determine his income from a source including his income for the year from each office, employment, business and property. Section 4 of the present Act directs a taxpayer as to how he is to compute his income for a taxation year from a particular source.

Therefore, what is consistent between the old Act and the present Act is that:

1. a taxpayer is taxed on his income but the word income" is not defined;

and

2. income is described to be from a source but the word "source" is not defined.

In order to find liability for tax, one must have a receipt having the quality of income which ordinarily would flow from an identifiable source: for example, interest on a bank account, dividends from shares, profits from a business. The analogy often used by the courts in deciding tax cases is: income is the fruit of the tree. It is the receipt that flows or is expected to flow from the source. As Professor F.E. LaBrie put in his text book The Principles of Canadian Income Taxation (Toronto: CCH Canadian Ltd., 1965) at page 25:

Income, it has been said, represents a flow of gain and must arise from a source that is capable of producing an income.

As stated, the Crown argues that the accused, Frank Fogazzi, is taxable on the misappropriated money:

1. either as business income and/or

2. as income from a non-specifically enumerated source under subsection 3(a) of the Act.

I do not understand the need to make the argument conjunctively and disjunctively. If the misappropriated money is in law income from a business then it is taxable. If it is not income from a business, then to succeed the Crown must establish that such money is income from a source. It is only where the amount sought to be taxed is not "income for the year from each office, employment, business and property" (section 3) that the Crown must then resort to the inclusive concept of income from a source. Section 3 of the present Act provides:

3. The income of a taxpayer for a taxation year for the purposes of this Part is his income for the year determined by the following rules:

(a) determine the aggregate of amounts each of which is the taxpayer's income for the year (other than a taxable capital gain from the disposition of a property) from a source inside or outside Canada, including, without restricting the generality of the foregoing, his income for the year from each office, employment, business and property;

[Emphasis added.]

I make this analysis at this stage because the law which was applied in Poynton is substantially the same as the law applying to Frank Fogazzi.

When one carefully reads Evans, J.A.'s reasons in Poynton, supra, I suggest that the court there found Poynton to be taxable on the money and benefits received as income from an office or employment within the meaning of subsection 5(1) of the pre-1972 Act. The Court did not find, nor was it necessary for them to find, that Poynton was taxable on the money and benefits received as income from a source. With respect, the Court in Poynton did not address, nor was there any need for it to address, the concept of income from a source.

Referring back to the excerpt from page 43, Evans, J.A. said:

I am of the opinion that there is no difference between money and money's worth in calculating income. They are both benefits and fall within the language of sections 3 and 5 of the Act, being benefits received or enjoyed by the respondent in respect of, in the course of, or by virtue of his office or employment,

[Emphasis added.]

That statement of and by itself finds Poynton, supra, taxable on the money and benefits as income from an office or employment within the meaning of section 5 of the pre-1972 Act. The section contains broad parameters as to how income from an office or employment may be received. The section uses the words "in respect of”, “in the course of”, and “by virtue of”. These are broad terms. Poynton's employment put him in a position where he could negotiate these kickbacks. Certainly the kickbacks were not received as "salary, wages and other remuneration" from his office or employment, but one might argue that they were benefits” received "in respect of”, or" in the course of" or^by virtue of" his office or employment thereby making them taxable, or so the Court found. (In my view, one has to stretch the meaning of these words to arrive at this conclusion. The employment presented Poynton with the opportunity to steal. The receipts did not flow from his employment nor were they received as a benefit in respect of, in the course of or by virtue of his employment. The receipts flowed from Poynton's own acts in having developed a scheme for profit-making.) Having found liability to tax under section 5, there was no need for the Court to concern itself with the concept of" income from a source”. Evans, J.A. went on to say at page 43:

If it is a material acquisition which confers an economic benefit on the taxpayer . . .then it is within the all-embracing definition of section 3.

[Emphasis added.]

He did not, regrettably, go on to explain what that all-embracing definition was.

With respect, this comment would appear to be obiter dicta inasmuch as the Court had found liability to tax under section 5. Furthermore, there is a problem with the use of the words "economic" and "material" in that sentence. The economic theory of taxation was specifically rejected by the Supreme Court of Canada in: Wood v. M.N.R., [1969] C.T.C. 57, 69 D.T.C. 5073. Abbott, J. said at page 958-59 (D.T.C. 5074):

The task of determining the meaning of income for income tax purposes has been left to the courts. The English courts, whose decision on this point the Canadian courts tend to follow, have determined the meaning of income for tax purposes without reliance on economic theory. Income is to be understood in its plain ordinary sense and given its natural meaning.

However, it might be said that Evans, J.A. was using the word not in a theoretical sense but in a practical sense. Poynton was better-off because he had stolen the money. With respect, the practical better-off basis is not a basis for taxation under the Income Tax Act. The “buck-is-a-buck” approach was one of the many recommendations for determining liability for tax made by the Carter Commission on Taxation (report released in 1967), but that approach was not adopted by the government.

I would also question the use of the word “ material”. What is a "material" acquisition? If tax law is to be strictly interpreted as the courts have said many times, what is a "material" acquisition? Is it $100 or $1,000. What is material depends upon the circumstances. $1,000 would be significantly material to a poor student and the test of materiality would make it taxable: but would it be taxable to the millionaire? "In a taxing Act it is impossible to assume any intention, any governing purpose in the Act except to take such tax as the statute imposes. Cases, therefore, under the taxing Acts always resolve themselves into the question whether or not the words of the Act have reached the alleged subject of taxation”. Tennant v. Smith, [1892] A.C. 150. “Before a condemnation to pay tax is made, a clear and unambiguous enactment must first be found": The Royal Trust Company v. M.N.R., [1928-34] C.T.C. 74, 1 D.T.C. 193, at page 77 (D.T.C. 195), Audette, J.

Further, the statement although resorting to section 3 which would hold the money and benefits taxable as income from a source did not say what that source was. One might conclude by reading the second last paragraph on page 43 (quoted later) that the source was Poynton's activity as a thief and that might very well be, on the facts in Poynton, supra, where his illegal activities went on for many years and he received many different amounts of money and benefits from different customers of his employer. With respect, the facts in this case are very different and they distinguish the Poynton case. Fogazzi received the money in a single receipt and he misappropriated it or converted it to his own use, by, it would appear, a single taking.

One might argue that the Court of Appeal in Poynton settled this question of the “isolated transaction" as well when they discussed Curlett v. M.N.R.,

[1961] C.T.C. 338, 62 D.T.C. 1320. Curlett developed a practice of selling mortgages, which he had bought at a discount, to his own corporation at face value, thereby realizing a profit. Curlett was held to be properly liable to tax on these profits as income from a business. Evans, J.A. said at page 41 in Poynton:

The fact that the Court (in Curlett) stated that the money was “income from a business” indicates the scope and extent of the operation but does not affect the basic finding that money accruing in such a manner, whether as the result of an isolated transaction or from a series of transaction, is taxable income.

[Emphasis added.]

With respect, the court's finding that Curlett’s profit was income from a business was essential in order to find liability for tax. It was not merely a descriptive remark as Evans, J.A. seemed to think.

What then was Evans, J.A. referring to when he said "in such a manner"? If he was referring to the receipt as being from a business then the words following in that sentence are consistent with recognized tax law. (On the facts, the reference to “isolated transaction” would appear to have been unnecessary because of the number of times Curlett had sold his mortgages to his corporation at a profit). On the other hand, if Evans, J.A. was referring to the fact that Curlett had raised as a defence the breach of his fiduciary duty to the corporation, that is, the illegal nature of the transactions and his liability to repay the corporation, then, with respect, the learned Justice appears to have slipped off the track and he appears to have found liability based on the illegal nature of the transactions, which is of no consequence. If that washes thinking, then the reference to" isolated transaction” presents a problem because to find liability for tax in respect of an isolated transaction (absent facts establishing a business) one must resort to the last alternative and find that the receipt was" income from a source”. In other words, if Curlett's activity constituted the carrying on of a business as the Exchequer Court found, then Curlett was liable to tax on that basis and it was immaterial that Curlett was in breach of his fiduciary duty to the corporation when he dealt with the corporation in the manner which he did. Even though his conduct was illegal, he was by the scope and extent of his activity carrying on a business, just like Christensen and Eldridge, supra. With respect, the Court in Curlett, supra, found the taxpayer liable to tax because he was carrying on a business not because what he was doing was illegal. Evans, J.A.'s comment in the second last paragraph on page 43 in Poynton, supra:

The benefits sought to be taxed did not accrue to Poynton nor were they conferred upon or received by him qua director, qua officer or qua shareholder but qua thief

[Emphasis added.]

appears to found liability on the fact that Poynton was a thief. As we have seen, the fact that gains are derived from illegal activity is immaterial. One must look to the activity to determine if such activity constitutes the carrying on of a business or is an adventure or concern in the nature of a trade, and it is immaterial that the activity was illegal or that he was a thief, unless he was in the business of being a thief. One must have a receipt which has the quality of income and one must have a related source. It matters not that the taxpayer is a thief. As McLachlin, J. said in Christensen, supra,“ "The taxing statute is to be interpreted as it reads and not as a moral document."

Analogies can sometimes be helpful to identify issues more clearly and sometimes they are not. Consider the following: Mr. A. is walking along the street and he sees a $100 bill lying on the sidewalk. He picks it up, puts it in his pocket and walks on. Would anyone suggest that Mr. A. would be subject to tax on the $100? I suggest not. Now let us have Mr. A walking down the sidewalk and he sees a briefcase inadvertently left on the sidewalk by its owner. He picks it up, opens the latches and inside there is a $100 bill. He puts the bill in his pocket, puts the briefcase back where he found it and walks on. Would anyone suggest that Mr. A. would be subject to tax on that $100? I suggest not. Now let us assume that the owner's card was attached to the handle of the briefcase and that Mr. A. read it. The owner is Mr. B. Would Mr.

A. be taxable on the $100 “qua thief" because Mr. A. now knows who the owner is? Again, I suggest that Mr. A. would not be subject to tax. Lastly, should it make any difference if Mr. B. were Mr. A.'s employer or a customer in business of Mr. A.? The analogy brings into focus the need that to find liability for tax one must have a receipt which has the quality of income flowing from an income-producing source and it is immaterial that an illegal act was committed in the course of realizing that receipt. I suggest that it is immaterial that the object of the illegal act was a business relationship or an employment relationship. To use Rowlatt, J.'s words in Mann v. Nash, supra, to say that a person is liable to tax because he is a thief is "a piece of rhetoric which is perfectly useless for the solution of the question which I have to decide".

With respect to Crown counsel's argument, I do not think that Poynton offers all that much support to the Crown's case. The decision is founded very much on its facts. Poynton was an employee. He received kickbacks numerous times from numerous people over many years. The Court found that such moneys and benefits received were liable to tax as income from employment within the meaning of section 5 of the pre-1972 Act. With respect the Court made no analysis of what constituted income from a source and notwithstanding Evans, J.A.’s reference to section 3 (page 43) and his comment that Poynton received the money and benefits “ qua thief” (page 43) that is not sufficient to establish liability for tax except possibly for a person who by reason of the degree of activity engaged in and the recurring nature of the receipts from such activity establishes himself to be, so to speak, in the business of being a thief. With all due respect, a person who steals once is not in the business of being a thief. The receipt does not have the quality of income nor is it from an income producing source. There is no basis for establishing liability for tax.

I set out earlier that the Crown's position was that Fogazzi was subject to tax on the misappropriated money:

1. either as business income and/or

2. as income from a source

As suggested, Poynton, supra, is not good authority to support the argument that Fogazzi is liable for tax on the misappropriated money as being income from a source. Can liability for tax be established on the basis that such misappropriated money constitutes income from a business?

The present Act qualifies business as being a source of income (section 3). Subsection 9(1) provides that "a taxpayer's income for a taxation year from a business or property is his profit therefrom for the year". Division B subdivision (b) of the Act contains many detailed and complex provisions as to how a taxpayer shall compute his profit from a business. Although “income” and "source" are not defined, the word "business" is. Subsection 248(1) defines "business" as follows:

business.—" business” includes a profession, calling, trade, manufacture or undertaking of any kind whatever and, except for the purposes of paragraph 18(2)(c), section 54.2 and paragraph 110.6(14)(f), an adventure or concern in the nature of trade but does not include an office or employment;

[Emphasis added.]

Business implies activity, repeated activity. It implies a degree of organization which has as its aim the realization of profit. It implies recurring receipts and recurring expenses. That is why in order to tax a person on a gain realized in an isolated transaction, the law defined "business" to include an "adventure or concern in the nature of trade”. For example, if a person having no history of dealing and trading in land and who has owned a piece of land for many years sells the land at a profit, then the profit would be taxed as a capital gain. However, if this same person puts a plan of subdivision on the land and puts in roads and sewers and then sells the land lot-by-lot, even if this is the only time he has ever done this, he is subject to tax on the profit as income from a business because he has engaged in an adventure or concern in the nature of trade. It may be the only transaction of this type that he has ever engaged in, that is, it is an isolated transaction, nevertheless it is an adventure or concern in the nature of trade. "Adventure or concern” means the isolated nature of the transaction. “In the nature of trade" means this person has conducted himself in the same manner as a person would have who is in the business of trading in land. What constitutes an adventure or concern in the nature of trade was discussed by Thorson, J. in M.N.R. v. James A. Taylor, [1956] C.T.C. 189, 56 D.T.C. 1125. In Taylor, Thorson, J. set out eight points to be considered in looking at the question. The Taylor case has been quoted and approved in many cases in tax law and is still regarded as good law. However, the Supreme Court of Canada in Irrigation Industries Limited v. M.N.R., [1962] C.T.C. 215, 62 D.T.C. 1133 reminded the taxing authorities that the concept was not capable of sustaining an assessment for tax just because a taxpayer realized a gain on some property. Irrigation Industries Limited had purchased a number of treasury shares of a corporation as an investment and had realized a substantial profit within a few months. The Minister sought to assess the gain for tax as an adventure or concern in the nature of trade. The Court rejected this argument and Martland, J. said at page 215 (D.T.C. 1133):

I cannot agree that the question as to whether or not an isolated transaction in securities is to constitute an adventure in the nature of trade can be determined solely upon that basis. In my opinion, a person who puts money into a business enterprise by the purchase of the shares of a company on an isolated occasion, and not as a part of his regular business, cannot be said to have engaged in an adventure in the nature of trade merely because the purchase was speculative in that, at that time, he did not intend to hold the shares indefinitely, but intended, if possible, to sell them at a profit as soon as he reasonably could. I think that there must be clearer indications of "trade" than this before it can be said that there has been an adventure in the nature of trade . As Scott, L.J. said, when delivering the judgment of the Court of Appeal in Barry v. Cordy, [1946] 1 All E.R. 396 at page 400:

That a single transaction may fall within Case 1 is clear; but, to bring it within, the transaction must bear clear indicia of "trade"; e.g. Martin v. Lowry, (1925) 11 T.C. 297—the single purchase of a vast quantity of linen for resale; or Rutledge v. Commissioners of Inland Revenue, (1929) 14 T.C. 495, where there was a single purchase of paper. Unless ex facie the single transaction is obviously commercial, the profit from it is more likely to be an accretion of capital and not a yield of income.

[Emphasis added.]

Martland, J. is saying that one must give meaning to the phrase “in the nature of trade”. It is suggested that the words imply a business-like or mercantile activity.

Surely, there can be no question on the facts as agreed to that Frank Fogazzi is not in the business of misappropriating money entrusted to him. This is the only time which the agreed-upon evidence alleges that he has ever done such a thing. Then, can the amount of misappropriated money be assessed for tax "as an adventure or concern in the nature of trade" to bring it within Crown counsel's submission that such money is a taxable as income from a business (an adventure or concern in the nature of trade being included in the definition of" business”). Does that phrase contemplate assessing for tax the gain or benefit derived by the person who steals once, that person who has not so organized himself or who has not so conducted himself that it can be said that he is in the business of being a thief. The Income Tax Act is a strict interpretation statute. One has to have a receipt having the quality of income in order to assess that income to tax. With respect to the person who steals once, the lawyer in Crown counsel's example referred to earlier: Where is the receipt which has the quality of income? Where is the recurring aspect of such a receipt to qualify it as income? What is the source from which that receipt was derived? Where is the possibility that such source may reasonably be expected to produce a recurring amount in the nature of income? Can it be said that Frank Fogazzi engaged in an adventure of concern in the nature of trade because he stole some money just like an ordinary thief would have? The argument may be attractive for its simplicity but I do not see how it could ever be said that the single act of theft could ever be found to fit within the words "in the nature of trade" as that phrase has been interpreted by the courts. The professional thief is engaged in a business and that is a recognized source which produces income. The person who steals once is not in business so the amount fails to have the quality of income unless it can be found to be "in the nature of trade". To my knowledge, there is no decided case in tax law in the English speaking world that has held that a person who steals once has engaged in an adventure or concern in the nature of trade. To suggest that the words cover the point is to put a strain on the words which they simply cannot bear.

In Buckman, supra, the Tax Court of Canada upheld an assessment assessing for tax a lawyer who embezzled substantial amounts of money from his clients over a number of years. The taxpayer unsuccessfully attempted to argue that such amounts did not have the quality of income because the moneys belonged to others. In coming to the conclusion which it did in holding the taxpayer properly subject to tax on the amount of the misappropriations, the Court relied substantially on Poynton, supra. The Tax Court cited many of the same passages that I have dealt with earlier in holding that these receipts, obtained by theft as they were, were taxable as income from a business. Sobier, J. said in Buckman at page 2615 (D.T.C. 1254):

The number of misappropriations and the methods employed by the appellant had all the earmarks of a business. He took risks in stealing the Funds and being found out. His reward however, was his hope of escaping detection and keeping the funds for his own use. There is no difference whether the thief acted as a solicitor, agent or employee. The fact that the funds are to be treated as income flows from the realities of the situation. Paraphrasing Evans, J.A. in Poynton, supra: What is being sought to be taxed didn't accrue to Mr. Buckman qua solicitor or qua mortgage broker but qua thief.

Mr. Buckman was engaged in a business separate and apart from his law practice and mortgage brokerage activities and what he received from this business was income. Based upon Curlett and Poynton, supra, the funds received were income from a business and therefore taxable. This was the reality of the situation regardless of GAAP.

Because of this finding, I need not canvass the other argument that the funds emanated from another source.

The Court in Buckman, supra, expressly found the taxpayer to be carrying on a business, the business of stealing from clients. The amounts stolen had achieved the quality of income; the taxpayer had embarked upon a scheme for profit-making. He did it numerous times over many years. Those facts alone distinguish Buckman from the case at bar and may justify the decision; however, with respect, I suggest that it is doubtful. Buckman is under appeal to the Federal Court of Canada. I note also that Sobier, J. did not discuss the concept of such amounts being income from a source. It seems that the Minister argued that such money was taxable as income from a business or as income from a source. Having decided that the money was taxable as income from a business, it was not necessary for the court to delve into the income from a source argument. So Buckman is distinguishable on its facts and does not address the issue present in Fogazzi, that is, the person who steals once. Buckman extended the principle in Poynton, supra, where misappropriated income was held to be income from an office or employment to income from a business. In Canada v. Joseph Burnett and Burnac Corporation, a decision of the Ontario Court (General Division), released April 12, 1991, another case where the Crown charged a taxpayer with wilfully evading the payment of tax, Hartt, J. said in respect of the Crown's argument to extend the principle in Poynton to business source misappropriations:

Second, even if the Crown succeeds in its argument that the Robertson rule does not apply to "business profits” which are illegally obtained, there is no allegation nor any evidence that the amounts at issue in this prosecution were likewise, illegally obtained. Poynton may qualify Robertson in the limited context of dealing with illegally gained income from the source contemplated by that case. However, bearing in mind the limited role of a Criminal Court in determining issues of taxation, and the constitutional constraints under which a criminal court operates, I cannot see how it can extend beyond those limited circumstances. I am reinforced in this conclusion by the currency of the orthodoxy of the Robertson rule in recent tax cases and appeals at the Federal Court (see for example, Foothills Pipelines (Yukon) Ltd, v. M.N.R. [1990] F.C.J. No. 925 (F.C.A.), or Burrard Yarrows Corp. v. Canada [1986] F.C.J. No. 504 Court File no. T-637-84 Action No. A-306-90). As a result, I prefer to limit the effect of Poynton to its particular facts, and I hold that whatever the ratio decidendi for which it stands, it cannot impair the jurisprudence which continues to govern the determination of issues of taxation in courts who are beyond the ambit of stare decisis emanating from a Superior Court of any province, or for that matter a Court of Appeal. To hold otherwise would invite the very real danger of the two parallel courts moving in different directions on points of income tax law. This is particularly invidious in view of the fact that this Court does not deal on a national and unitary basis with issues of taxation.

In Hartt, J.'s view the principles enunciated in Poynton ought to be limited to the facts in Poynton and he was unwilling to extend the Poynton principle to business source income.

The meaning of income and income from a source

The term “income” has been defined as “ periodical receipts from one's business, lands, work, investments, etc." (Concise Oxford English Dictionary, 1982).

Section 3 of the Act uses the source concept of income. This requires a taxpayer to calculate his income from each source separately and aggregate the various amounts to compute his "income" for tax purposes.

The meaning of "income" and “income from a source” has been a challenge to the courts and to authors for many years.

In the text, The Principles of Income Taxation, by Hannan and Farnsworth, published by Stevens & Sons Limited, 1951 edition, a book known some years ago by tax practitioners for the clarity of its explanations of difficult taxation principles, the authors discussed the meaning of" income" at pages 3 to 5:

The word "income" is of such elusive import that it cannot be defined in precise terms which would adequately meet legislative requirements. Why its meaning is not to be found in any income tax statute is explained by the many shapes which income may assume, and the illimitable variety of circumstances in which it may be derived.

What is of immediate concern is that the Act, while providing for a tax on income (or what is deemed, under Schedules A and B, to be income) furnishes no real assistance in determining the meaning of the thing which it taxes. For nowhere in any of the Act constituting the British income tax code is the term “income” defined; sources of income are enunciated and methods of computing income therefrom prescribed.

In Australia, the statute is equally vague:

In this Act, unless the contrary intention appears, “income from personal exertion” . .. means income consisting of earnings, salaries, wages, commissions, bonuses, pensions . . . the proceeds of any business carried on by the taxpayer . . . and any profit ensuing from the sale by the taxpayer of any property acquired by him for the purpose of profit-making by sale

"Income from property" . . . means all income not being income from personal exertion.

It will be observed that the principal definition says that" income from personal exertion” means income consisting of certain specified kinds of receipts. These receipts do not become income because they are mentioned in the definition; unless they are income, the definition is not concerned with them. Cf. Scott v. C. of T., (N.S.W.) 1935 A.T.D. 142, 145.

The chief object of this section is not to indicate the characteristics of income, but to classify various kinds of income, cf. Schedules A-E of the British income tax Acts.

In Canada we find a similar definition of “income” as income, thus:

The taxable income of a taxpayer . . . is his income for the year minus the deductions permitted by Division C (subsection 2(3)).

The income of a taxpayer is his income for the year derived from all sources and, without prejudice to the generality of the foregoing, includes income . . . from all (a) businesses; (b) property and (c) offices and employments (subsection 2(3)). Subjects to the other provisions of this Part, income from a business or property is the profit therefrom . . . (subsection 2(4)).

The Canadian income tax code is thus even more elusive than the British and Australian codes in its complete failure to define the "income" which it seeks to tax.

The lack of statutory guidance, therefore, makes it necessary to look further, because the fundamental problem will constantly arise in some peculiar form. There will be receipts of such an exceptional nature as to challenge any statutory classification. In that event resort must be had to ulterior standards, and it is natural to start with relevant dictionary meanings.

Income

"That which comes in as the periodical produce of one’s work, business, lands, or investments (commonly expressed in terms of money); annual or periodical receipts accruing to a person or corporation; revenue"—Shorter Oxford English Dictionary.

“That gain which proceeds from labour, business, property, or capital of any kind, as the produce of a farm, the rent of houses, the proceeds of professional business, the profits of commerce or of occupation, or the interest of money or stock in funds, etc.; revenue; receipts; salary; especially, the annual receipts of a private person, or a corporation, from property; as, a large income"—Webster's International Dictionary.

These and other dictionary meanings merely describe the general features of common types of income, and do not provide any test to determine the nature of unusual receipts.

In The Income Tax Law of Canada (4th ed.) by A.R.A. Scace, the author addresses the problem:

As we have already said, no statutory definition of income appears to exist. The closest that Canada has come to it was subsection 3(1) of the Income War Tax Act, which stated:

For the purposes of this Act, “income” means the annual net profit or gain or gratuity, whether ascertained and capable of computation as being wages, salary or other fixed amount, or unascertained as being fees or emoluments, or as being profits from a trade or commercial or financial or other business or calling, directly or indirectly received by a person from any office or employment, or from any profession or calling or from any trade, manufacture or business, as the case may be whether derived from sources within Canada or elsewhere; and shall include the interest, dividends or profits directly or indirectly received from money at interest upon any security or without security, or from stocks, or from any other investment and, whether such gains or profits are divided or distributed or not, and also the annual profit or gain from any other source including . . . [There followed certain classes of receipts to be included.]

The Income Tax Act in force until 1971 however, was much less specific. Section 3 stated laconically that the income of a taxpayer for a taxation year was his income “from all sources inside or outside Canada” and, “ without restricting the generality of the foregoing, includes income for the year from all (a) businesses, (b) property, and (c) offices and employments.” The word "business" had an extended definition in paragraph 139(1)(e) of that Act (now in subsection 248(1)), which stated that it included a profession, calling, trade, manufacture or undertaking of any kind whatsoever and an adventure or concern in the nature of trade.

Section 3 of the current Act simply gives a formula for determining a taxpayer's income for a taxation year. It starts with “ the aggregate of amounts each of which is the taxpayer's income for the year (other than a taxable capital gain from the disposition of a property) from a source inside or outside Canada, including . . . his income for the year from each office, employment, business and property”. To this is added any excess of capital gains over capital losses, and from the total are deducted allowable deductions and losses.

Thus “income from all sources" of the pre-1972 Act becomes the aggregate of incomes from each separate source.

In addition there are specific provisions in the Act, which will be considered later, bringing certain things into income for tax purposes. But the Act contains no criteria by which "income" as such may be isolated or identified. The taxation of capital gains, introduced into Canada in 1972, is dealt with in Chapter 6.

The expression “income from all sources”, or “income from a source”, has never really been defined by the courts. And there have been occasions when the Courts have found it difficult to ascribe an amount of income to a source. The outstanding example of this is Curran v. M.N.R., which concerned the taxability of $250,000 paid to an executive of Imperial Oil in order to induce him to leave that company and join another. However, the taxpayer never did join the company that paid the sum, so that it was not income from employment under section 5 (now 5 and 6) or section 14A (later 25, now 6(3)). The Supreme Court found it taxable, not under any specific provision of the Act but because, said the Chief Justice, the word "income" had to be given "its ordinary meaning bearing in mind the distinction between capital and income and the ordinary concepts and usages of mankind”.

In Curran v. M.N.R., [1959] C.T.C. 416, 59 D.T.C. 1247, a decision of the Supreme Court of Canada, the Chief Justice (Locke and Judson, JJ. concurring) said at page 421 (D.T.C. 1249):

As has been pointed out in the recent judgment of this Court in Bannerman v. M.N.R., [1959] C.T.C. 214, 59 D.T.C. 1126, there is no extensive description of income such as appeared in The Income War Tax Act. The word must receive its ordinary meaning bearing in mind the distinction between capital and income and the ordinary concepts and usages of mankind.

[Emphasis added.]

So not only must the word income" be given its ordinary meaning, the law also requires that a"source" be identified with the receipt. If no source can be identified, (and assuming there has been no disposition of property for capital gains purposes) then the receipt will not be included in income. In M.N.R. v. Eastern Abattoirs Ltd., [1963] C.T.C. 19, 63 D.T.C. 1023, a decision of the Exchequer Court of Canada, Noël, J. said at page 22 (D.T.C. 1025):

As a matter of fact, the amount cannot be taxable by virtue of section 3 above, since we are not dealing with income from respondent's business, property, or offices and employments. Nor are we dealing with an amount arising from the fruits of its enterprise nor an amount which would replace them.

More recently, the Federal Court of Appeal in The Queen v. J.E. Cranswick, [1982] C.T.C. 69, 82 D.T.C. 6073, dealt with this concept of “income from a source” and said at page 73 (D.T.C. 6076):

Having regard to the indicia suggested by counsel for the respondent, which I think are all relevant, although no one of them by itself may be conclusive, I am of the opinion that the payment received by the respondent was not income earned by or arising from the respondent's shares, which are the only possible source of income in this case. In the absence of a special statutor definition extending the concept of income from a particular source, income from a source will be that which is typically earned by it or which typically flows from it as the expected return.

[Emphasis added.]

If “income” is to be interpreted by "the ordinary concepts and usages of mankind” I would suggest that the ordinary person would have difficulty in accepting the proposition that stolen money is income. And I have difficulty in accepting the argument that when a person steals from another that the amount stolen has been "typically earned from a source" or it is that which “typically flows from a source” as the expected return; unless, of course, the person was Carrying on business as a thief in which event it can be said that he has embarked on a scheme for profit-making, the income or fruits from which would be properly subject to tax as income from a business. It would be the activity which produces the income which attracts tax; not the fact that the person is a thief.

The second issue:

In what taxation year is the accused, Frank Fogazzi, taxable: in the year in which he received the money or in the year during which the facts establish that he converted the money to his own use?

Paragraphs 2 and 3 of the agreed statement of facts state:

2. On January 9, 1979 two Italian investors, Dino and Cesar Tombacco, (the Tombacco brothers) transferred $240,000 in U.S. funds from their Swiss bank account to Mr. Nereo Frank Fogazzi's account with the Toronto Dominion Bank in Toronto with the express intention that Mr. Fogazzi invest the funds on their behalf in North American real estate. At 1979 exchange rates these moneys amounted to $285,264 in Canadian funds.

3. The investors were told by Mr. Fogazzi that the moneys were being invested on their behalf in various real estate properties in Florida, but the Tombaccos were not provided with any details of these investments. The Tombaccos became concerned that they would lose their money and therefore, on August 10, 1981, in order to secure their interest in the $240,000 which they had transferred in trust to Mr. Fogazzi, the Tombaccos registered cautions against title on two properties in Woodbridge, Ontario; lots 47 and

54. These properties were registered in Mr. Fogazzi's name in trust, although they had originally, been purchased in 1976 by the Tombaccos.

It is a fact that Mr. Fogazzi received the money on January 9, 1979. Although it is not specifically stated, it would appear that Mr. Fogazzi misappropriated the money in or about August, 1981. In any event, the Tombaccos became sufficiently concerned about their money that they took steps to secure their loan.

If Mr. Fogazzi is taxable at all on the misappropriation then, according to established principles of taxation, he is taxable in the taxation year in which he misappropriated the money. That would appear to be 1981, and not the year 1979. In count number 9 relating to the taxation year 1981, the Crown alleges that Mr. Fogazzi failed to report income in the amount of $21,365.01, which amount is significantly less than the amount of the loan. The facts do not support a misappropriation in the taxpayer's 1979 taxation year as alleged by the Crown. One might say that this is a distinction without a difference because the accused's 1981 taxation year is included in the indictment as well. That is true, but in a court of criminal jurisdiction where the onus of proof lies on the Crown to prove beyond a reasonable doubt the amount of tax evaded in respect of each taxation year, if the facts indicate that the wrong taxation year was assessed, then the court ought to acquit as surely as the Tax Courts would be obliged to allow any appeal from a notice of reassessment which assesses tax on income in the wrong taxation year. I shall be returning to this point later in respect of the third issue.

The third issue:

What principle of law enables the Crown when charging a taxpayer with evasion of tax to charge that taxpayer in one count in the indictment with having evaded the payment of tax on income received over a number of taxation years? Related to this issue are the following issues:

1. Amending the indictment.

2. The meaning of “wilfully” in paragraph 239(1)(d) of the Act.

In the indictment, the accused, Frank Fogazzi, is charged with having offended the provisions of paragraph 239(1)(a) of the Act in respect of each of the taxation years 1979 to 1984 inclusive. These allegations are contained in separate counts 7, 8, 9, 10, 11 and 12. In count number 6, as amended, the Crown alleges:

THAT HE, the said NEREO FRANK FOGAZZI, unlawfully did, in the Town of Woodbridge, in the Judicial District of York Region, Province of Ontario, between the 31st day of December, 1978 and the 1st day of May, 1985, wilfully evade the payment of federal taxes $137,118.93 imposed by the Income Tax Act, R.S.C., Chapter 148, as amended, by failing to report $337,713.41 income in his T1 Individual Income Tax Return filed for the taxation years 1979 to 1984 inclusive, and did thereby commit an offence under Section 239(1)(d) of the Income Tax Act.

In effect, the Crown is alleging that Mr. Fogazzi evaded the payment of income tax in the amount of $137,118.93 in respect of his taxation years 1979 to 1984 inclusive contrary to paragraph 239(1)(d) of the Act. With respect, this is an offence which is unknown to tax law. Subsection 34(2) of the Interpretation Act R.S.C. 1985, c. 1-23 provides:

(2) All the provisions of the Criminal Code relating to indictable offenses apply to indictable offenses created by an enactment, and all the provisions of that Code relating to summary conviction offenses apply to all other offenses created by an enactment, except to the extent that the enactment otherwise provides.

An“ "enactment" is defined and it would include the Income Tax Act.

Section 34(2) would appear to be procedural in nature. Count 6 as framed charges the evasion of tax for the taxation years 1979 to 1984 inclusive. The substantive law, the Income Tax Act, provides in paragraph 239(1)(d):

Every person who has

(d) wilfully, in any manner, evaded or attempted to evade, compliance with this Act or payment of taxes imposed by this Act . . . is guilty of an offence

The taxes imposed by the Act are imposed in respect of each taxation year. It is a fundamental principle of taxation that liability for taxation is in respect of a taxation year. Each year is looked at as a water-tight compartment. Subsection 2(1) of the Act provides:

An income tax shall be paid as hereinafter required upon the taxable income for each taxation year of every person resident in Canada at any time in the year.

[Emphasis added.]

In view of this express statutory provision, how can the Crown charge an accused with evading the payment of taxes imposed by this Act for a series of taxation years?

[Emphasis added.]

In The Queen v. Mah, 19 C.C.C. (2d) 210, [1974] 5 W.W.R. 653, the Alberta Court of Appeal dealt with this very issue. In so doing the Court overruled (although it would appear that the decision was unreported at the time) the decision of the Chief Justice Milvain of the Trial Division, Supreme Court of Alberta in Re Medicine Hat Greenhouses Ltd. v. The Queen, 16 C.C.C. (2d) 508, 74 D.T.C. 6537. Milvain, C.J.T.D. was faced with two informations: one jointly charging a corporation and (presumably) its chief shareholder with tax evasion, and the other one charging only the individual. Among other counts, the individual was charged that between December 31, 1964 and March 13, 1970, he wilfully evaded the payment of income tax contrary to paragraph 239(1)(d) of the Act. The corporation was similarly charged in respect of its taxation years 1965, 1966, 1967, 1968 and 1969. The informations were attacked on four grounds:

1. The Provincial Court judge lacked jurisdiction because the offences alleged were statute barred by limitations.

2. The informations were bad for lack of particularity.

3. The informations were bad for multiplicity and duplicity.

4. The informations charged offences, the existence of which are unknown to existing law.

Milvain, C.J.T.D. said at page 6538 (74 D.T.C.):

In approaching a decision, I feel it is important to realize the whole Act contemplates returns on an annual basis, and that it is income on such basis that is subject to tax.

At page 6539 (74 D.T.C.), Milvain, C.J.T.D. continued:

When it is borne in mind that the Income Tax Act, contemplates returns on an annual basis, and that there are many ways in which an offence under paragraph 239(1)(d) might come about, it would seem clear that the joint information and also count (1) of the individual information become defective in that they lack particularity and infringe the concept of multiplicity and duplicity. In my view, the informations do not sufficiently define time, place and matter which go to a sufficient definition of the offence charged, as is contemplated by Brodie v. The King, [1936] S.C.R. 188, [1936] 3 D.L.R. 81, 65 C.C.C. 289.

Milvain, C.J.T.D. quashed, among other counts for other reasons, the counts that charged evasion for more than one taxation year and the grounds that they were defective for lack of particularity or for multiplicity or duplicity.

In the Court of Appeal's decision in Mah, supra, Smith, C.J.A. dealt with a count that was drafted in the same manner as count 6 in the case at bar and in Re Medicine Hat, supra. In response to the finding by Milvain, C.J.T.D. in Re Medicine Hat that the information was bad for lack of particularity, Smith C.J.A. said at page 213:

First may I state that in my opinion the offence charged in count 5"is charged . . . in such a way as to specify, in substance, the specific transaction intended to be brought against the accused". (Rinfret, J., later C.J.C., in the Brodie case at 199 S.C.R., 298 C.C.C., quoted by Ewing, J., in R. v. Imperial Tobacco Co. of Canada (1939), 72 C.C.C. 388 at page 395, [1939] 4 D.L.R. 520, [1939] 3 W.W.R. 394 at pages 400-1). My view is that it is clear that "the substance of the offence is stated”. (Rinfret, J., in the Brodie case at 193 S.C.R., 293 C.C.C., and also quoted by Ewing, J., in the Imperial Tobacco case at 392 C.C.C., 398 W.W.R.). And furthermore the offence is described “in words of the statute creating [it]", which is sufficient. (Ewing, J., in the Imperial Tobacco case at 396 C.C.C., 401 W.W.R. [quoting Willis, J., in Smith v. Moody, [1903] 1 K.B. 56 at page 61]). In my opinion, the offence is described “in such a way as to lift it from the general to the particular” (Ewing, J., in the Imperial Tobacco case at page 394 C.C.C., page 400 W.W.R.).

Further, Smith, C.J.A. said at page 215:

It was vigorously argued before us that the provisions of the Income Tax Act providing for annual returns had the consequence of preventing the laying of an information under section 239(1)(d) covering more than a single year's period, or in other words that count 5 must necessarily [sic] allege more than one offence under paragraph 239(1)(d).

(It would appear the learned Chief Justice intended to say". . . must necessarily not allege more than one offence under section 239(1)(d)").

At page 215, Smith, C.J.A. continued:

However, it was pointed out by this Court in R. v. Kisinger and Voszler (1972), 6 C.C.C. (2d) 212 at page 214, 18 C.R.N.S. 120 at page 121, [1972] 3 W.W.R. 147, that case (R. v. Hawkins and Sullivan referred to in the immediately preceding paragraph in the reasons) and R. v. Wakefield, [1966] 1 C.C.C. 324, [1965] 2 O.R. 669 (C.A.), were in subsequent cases regarded as having been rendered per incuriam and the following statement was made (by Smith C.J.A.):

I point out that in R. v. Canavan and Busby [[1970] 5 C.C.C. 15, [1970] 3 O.R. 353, 12 C.R.N.S. 385; aff'd [1970] 5 C.C.C. 22n, [1970] 3 O.R. 360n, [1970] S.C.R. viii], Schroeder, J.A., for the Court of Appeal of Ontario said at page 18:

A "transaction" may and frequently does include a series of occurrences extending over a length of time.

At pages 19-20 he says:

In the Hulan case [[1970] 1 C.C.C. 36, [1969] 2 O.R. 283, 6 C.R.N.S. 296] the Court adopted and applied the reasoning of Pickup, C.J.O., in R. v. Flynn, [1955] O.R. 402, 111 C.C.C. 129, 21 C.R. 1, where it was held that, where the evidence indicates that separate acts are successive and cumulative, comprising a continuous series, they can be considered as one offence and no objection can be taken to a conviction thereon on the basis of uncertainty.

Kelly, J.A., pointed out that neither in R. v. Hawkins and Sullivan nor in R. v. Wakefield [11965] 2 O.R. 669, [1966] 1 C.C.C. 324] was there a reference to the decision of this Court in R. v. Flynn or to subsection 500(3) of the Code, and he concluded for that reason that these decisions should be regarded as having been rendered per incuriam.

In the Kisinger case at page 214 C.C.C., it was stated:

But the plan or scheme of the appellants was obviously one to raise several hundred thousand dollars which would necessitate carrying on the operation over a considerable period and negotiating with numerous people. These facts do not in our view lead to the conclusion that the charge applied to more than "a single transaction”. The charge in our view relates to "a general scheme of operation which constituted one continuing offence": see headnote in Bruck v. The King [(1942), 80 C.C.C. 52, [1943] Rev. Leg. 219], Galipeault, J., at page 56

Other decisions consistent with R. v. Flynn (1955), 111 C.C.C. 129, [1955] O.R. 402, 21 C.R. 1, and the Kisinger case, supra, are: Dressier v. Tallman Gravel & Sand Supply Ltd. (No. 2), [1963] 2 C.C.C. 25,36 D.L.R. (2d) 398, 39 C.R. 180, Freedman, J.A. (later C.J.M.), at page 35 C.C.C., page 191 C.R.; Minchin v. The King (1914), 23 C.C.C. 414, 18 D.L.R. 340, 6 W.W.R. 800, Anglin, J. (later C.J.C.), at pages 420-21 C.C.C., page 805 W.W.R.; R. v. Michaud (1909), 17 C.C.C. 86, 39 N.B.R. 418; Kipp v. A.G. Ont., [1965] 2 C.C.C. 133, [1965] S.C.R. 57, 45 C.R. 1; R. v. Patzer, Clark and Warren, [1965] 3 C.C.C. 142,45 C.R. 108, 50 W.W.R. 58; R. v. Zamal et al., [1964] 1 C.C.C. 12, [1964] 1 O.R. 224, 42 C.R. 378.

Smith, C.J.A. went on to consider sections 723 and 510 (now 581) dealing with informations and indictments respectively. Subsection 581(1) provides as follows:

581. (1) Each count in an indictment shall in general apply to a single transaction and shall contain in substance a statement that the accused or defendant commit* ted an indictable offence therein specified.

In the case at bar, the accused is charged upon an indictment.

In considering subsection 510(1) (now section 581) Smith, C.J.A. said at page 216:

. . . so that the reference in subsection 510(1) to the requirement that "each count in an indictment shall in general apply to a single transaction” applied to informations under section 723 as well as to indictments.

Smith, C.J.A. concluded at page 217:

For the purposes of this case I am prepared to hold and I hold that an“ offence” under section 723 can be considered as being synonymous with or equivalent to "a single transaction” under subsection 510(1).

Having considered the authorities referred to I am of the view that the count in question is not duplicitous and does not charge two or more offenses. On its face it is not objectionable, in my opinion. It alleges one offence or one transaction which may or may not consist of a number of acts amounting to one offence or transaction. Whether the evidence, when it is adduced, establishes one offence or transaction or more than one offence or transaction, of course we cannot decide at this stage, for the evidence is not yet in existence. All we say is that on the face of it the count is unobjectionable.

The decision of the Alberta Court of Appeal in Mah, supra, coming from a Court of appeal of another province, has to be considered by this Court. This is not a decision which I need make to come to my decision regarding the charges before this court, but I would point out for a number of reasons why, in my view, the decision of Milvain, C.J.T.D. is the preferable decision when dealing with tax evasion cases. First of all, all authorities referred to by the learned Chief Justice in Mah were cases interpreting charges found in the Criminal Code, not in the Income Tax Act. I think it can be argued that the jurisprudence developed over so many years in interpreting procedures concerning charges laid under the Criminal Code need to be looked at cautiously when one is dealing with charges under another statute, especially the Income Tax Act. As I said earlier, the offence of tax evasion is found in the Income Tax Act: that is the substantive law. The procedures of the Criminal Code are incorporated by reference through the Interpretation Act. Jurisprudence having as its objective the prosecution of charges found in the Criminal Code should be interpreted in light of the substantive law found in the Income Tax Act and that Act looks at a taxpayer's income for each taxation year on a year-by-year basis and not as a series. Charging a series of taxation years would seem to ignore the express wording of subsection 2(1) of the Act. Indeed, it would seem to ignore the entire structure of the Act. Problems can arise making it difficult, indeed prejudicial to an accused taxpayer to know what to do to properly defend a charge of evasion.

For example: when a whole series of taxation years are wrapped up in one count, how is the taxpayer able to deal with that. I can appreciate that what the court is saying in Mah is that the offence charged is "one offence or one transaction": namely, the evasion of tax and it is immaterial that more than one taxation year is involved. The offence is the act of evasion. But is it? One must note that when Revenue Canada charges a taxpayer with tax evasion it does so generally, if not as a matter of policy, before a civil assessment has been made against the taxpayer. Revenue Canada computes the taxpayer's taxable income for each taxation year or years and determines the aggregate amount of tax sought to be evaded. It then just charges "evasion". When more than one taxation year is charged in a court alleging tax evasion, the taxpayer is literally left to raise his rights to claim statutory deductions in determining income and taxable income in the process of the trial. The object of the trial is to determine the amount of tax otherwise payable and evaded or sought to be evaded. To get to that point, one has to look at deductions permitted in computing income (Part I—Division B) and deductions permitted in computing taxable income (Part I—Division C).

For example: Revenue Canada may allege that a taxpayer has failed to report $X which is clearly income. The offence charged under paragraph 239(1)(d) is for evading "compliance with this Act or payment of taxes imposed by this Act". Fogazzi stands charged with wilfully evading the payment of federal taxes imposed by the Income Tax Act. These examples may not apply to him, but consider:

1. Possibly the taxpayer incurred expenses which he had not previously claimed possibly because no tax was payable and which would properly deductible under paragraph 18(1)(a) of the Act in computing the income which is the subject of the charge.

2. Possibly the taxpayer has available deductions on account of capital cost allowance pursuant to paragraph 18(1)(b) of the Act which had not been claimed previously and which would reduce the taxpayer's net income and the amount of tax payable.

3. Possibly the taxpayer has available loss-carry forwards or loss-carry backs pursuant to paragraph 111(1)(a) of the Act which would be a deduction in computing the taxpayer's taxable income and hence reduce the amount of tax payable.

4. Possibly Revenue Canada assessed a receipt of income in the wrong taxation year. For example, in the case at bar, I have raised the issue as to whether or not the misappropriated income is income in respect of the accused's 1979 or 1981 taxation year. It cannot be income in both. Assume Revenue Canada charged it in respect of the accused's 1979 taxation year and had not charged as well evasion in respect of his 1981 taxation year. If the facts support the taxation of the amount in 1981, then the accused should be acquitted on a charge of tax evasion on that amount in respect of his 1979 taxation year. But suppose as here, both 1979 and 1981 taxation years are included in the same count. The court could determine the amount of tax evaded in respect of the accused's 1979 taxation year by reducing the amount of income which is properly includible in his 1981 taxation year. And in determining the amount of tax evaded in respect of his 1981 taxation year, the Court could amend the count pursuant to subparagraph 601(2)(b)(i) of the Criminal Code by increasing the tax evaded by increasing the income by including the amount originally included in the taxpayer's 1979 taxation year. In other words, when a series of taxation years are charged in one count, the accused can be prejudiced and prejudiced in a way in which he could not be in the civil courts. If Revenue Canada were to have assessed the accused in respect of his 1979 and 1981 taxation years alleging that the misappropriated income was income in respect of the accused's 1979 taxation year and if the Tax Court were to find that such amount was properly includible in income in respect of the accused's 1981 taxation year then, notwithstanding that such taxation year is before the tax court, the tax court would have no jurisdiction to increase the tax payable by the accused in respect of his 1981 taxation year because to do so would permit Revenue Canada to appeal its own assessment, as the courts have described it, and that is not permitted, (see: Louis J. Harris v. M.N.R., [1964] C.T.C. 562, 64 D.T.C. 5332, at page 571 (D.T.C. 5337); The Queen v. Scheller, [1975] C.T.C. 601, 75 D.T.C. 5406 and Canada v. McLeod, [1990] 1 C.T.C. 433, 90 D.T.C. 6281). It would be strange indeed if an amendment could be allowed in a criminal proceeding under subparagraph 601(2)(b)(i) to make a count conform to the evidence when it would not be allowed in a civil proceeding.

5. Of less general application but nonetheless not uncommon is the situation which often arises when a taxpayer is jointly charged with his "private" corporation. The private corporation is often financée! through shareholder loans. If Revenue Canada alleges evasion, say for example, as a result of the corporation conferring a benefit on the taxpayer, the taxpayer may at least raise as a defence the availability of a debit to his load account in an amount sufficient to offset the amount of the alleged benefit. Such an argument may, if nothing else, raise a reasonable doubt as to the taxpayer's intent. If a series of taxation years are charged in one count, raising this defence becomes an extremely complicated matter especially where, as is often the case, there is a series of loans and repayments.

If duplicity and multiplicity are grounds for declaring bad an information in a charge laid under the Criminal Code, with respect they are even more so when considering an information respecting a charge of tax evasion under the Income Tax Act concerning a series of taxation years because the structure of the whole Income Tax Act is directed to assessing tax in respect of a taxation year as expressly provided by subsection 2(1) of the Act.

(a) Amending the indictment

Crown counsel moved the Court under subsection 590(3) of the Criminal Code to subdivide count 6 should the Court find that count 6 was bad. By doing so, Crown counsel wanted to separate the misappropriated amount of money from the other amounts of money not reported as income by the accused in respect of his 1979 taxation year. In view of the Mah decision, notwithstanding my comments about the correctness of the decision, I granted the motion and count 6 was amended as follows:

6. (a) THAT HE, the said NEREO FRANK FOGAZZI, unlawfully did, in the Town of Woodbridge, in the Judicial District of York Region, Province of Ontario, between the 31st day of December, 1978 and the 1st day of May, 1985, wilfully evade the payment of federal taxes in the amount of $16,532.33 imposed by the Income Tax Act, R.S.C. 1952, Chapter 148 as amended, by failing to report $52,449.41 in commission income and profit on the sale of land in his Tl Individual Income Tax Returns filed for the taxation years 1979 to 1984, inclusive, and did thereby commit an offence under paragraph 239(1)(d) of the Income Tax Act.

6. (b) THAT HE, the said NEREO FRANK FOGAZZI, unlawfully did, in the Town of Woodbridge, in the Judicial District of York Region, Province of Ontario, between the 31st day of December, 1978 and the 30th day of April, 1980, wilfully evade the payment of federal taxes in the amount of $120,586.60 imposed by the Income Tax Act, R.S.C. 1952, Chapter 148 as amended, by failing to report $285,264 in income from misappropriation of funds in his T1 Individual Income Tax Return for the taxation year 1979, and did thereby commit an offence under paragraph 239(1)(d) of the Income Tax Act.

(b) The meaning of "wilfully" in paragraph 239(1)(d) of the Act

“Wilfully” is defined in the Shorter Oxford English Dictionary as: "Purposely, on purpose, intentionally, deliberately”.

The general meaning of the word “wilfully” was defined as follows by Wurtele, J., in Ex parte O'Shaughnessy (1904), 13 Que. K.B. 178, 8 C.C.C. 136:

“Wilfully means not merely to commit an act voluntarily, but to commit it purposely with an evil intention, or in other words it means to do so deliberately, intentionally, and corruptly and without any justifiable excuse." This was quoted with approval by Richards, J.A., in R. v. Duggan (1906) 4 W.L.R. 481, 16 Man. R. 440, 12 C.C.C. 147 (C.A.).

In considering the word “wilfully” in the offence of wilfully obstructing a peace officer in the execution of his duty (section 129 of the Criminal Code), Robertson, J.A. said in R. v. Goodman (1951), 12 C.R. 65 at page 72 (B.C.C.A.):

To my mind the word “wilful” in section 168 (now section 129) applies to a state of circumstances where the person charged knows what he is doing and intends to do what he is doing, and is a free agent.

In the Canadian Law Dictionary at page 413, one finds:

wilful: That which is intentional or deliberate. That which is done knowingly, voluntarily. It may or may not imply conduct that is blameable or contumacious. Anderson and Eddy v. C.N.R., 35 D.L.R. 473, (1917) 3 W.W.R. 143 (Sask. C.A.). Also Brown v. Britnell & Co. Ltd. (1924) 27 O.W.N. 232.

And lastly, in Rosaire Lucier v. The Queen, [1988] 1 C.T.C. 230, 88 D.T.C. 6136, Ontario Court of Appeal, the Court commented negatively on the trial judge's statement in his reasons that “the defendant knew or ought to have known that he was receiving wages in 1978, 1979 and 1980 which he was not declaring”. The Court said:

Although the use of this language is unfortunate, looking at the reasons as a whole, it is clear that the trial judge applied the proper standard that the appellant wilfully evaded the payment of taxes by not declaring sums that he knew to be income and thereby evaded payment of taxes thereon. Wages are clearly income

A charge of wilful evasion cannot be maintained in the absence of mens rea and it is not enough to say that the taxpayer ought to have known that the receipt in question was income. The offence charged in Poynton was“ wilfully” evading the payment of tax. Before Poynton, no case had ever decided that kickbacks" received in the course of one's employment were income. The act may have been illegal but illegality, of itself, does not clothe the receipt with the quality of income. It would be well worth recalling the words of Audette, J. in The Royal Trust Company," Before a condemnation to pay tax is made, a clear and unambiguous enactment must first be found.” As well, the often quoted statement by Lord Cairns in Partington v. Attorney General (1869), L.R. 4 H.L. 100 at page 122 is also pertinent. Partington was quoted with approval by Duff, J. in the Supreme Court of Canada in Versailles Sweets Limited v. The Attorney General of Canada, [1924] S.C.R. 466, 3 D.L.R. 884, at page 468 (887 D.L.R.):

I am not at all sure that, in a case of this kind—a fiscal case—form is not amply sufficient; because, as I understand the principle of all fiscal legislation, it is this: if the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however, apparently within the spirit of the law the case might otherwise appear to be. In other words, if there be admissible, in any statute, what is called an equitable construction, certainly such a construction is not admissible in a taxing statute, where you can simply adhere to the words of the statute.

Conclusion

Mr. Fogazzi committed an illegal act when he misappropriated the money entrusted to him. However, there is no evidence to support a finding that when he misappropriated such amount he wilfully evaded the payment of taxes within the meaning of paragraph 239(1)(d) of the Income Tax Act. Furthermore, as a matter of law, the receipt did not have the quality of income so as to be income within the meaning of subsection 3(a) of the Income Tax Act.

The only count before the Court is count 6, as amended to form count 6(a) and 6(b). Crown counsel was content that this Court come to its decision on the evidence which consisted of the agreed statement of facts.

For the reasons given herein, I am striking the accused's guilty plea as it related to amended count 6(b) and I find the accused, Frank Fogazzi, not guilty as charged in amended count 6(b).

As for amended count 6(a), the evidence contained in paragraph 6 of the agreed statement of facts would support the accused's plea of guilty of evading the payment of federal taxes in respect of his 1979 taxation year imposed in respect of unreported income in the amount of $35,971.88 representing an amount received as commission income in that year and the court so finds the accused, Frank Fogazzi, guilty.

Further, the evidence contained in paragraph 7 of the agreed statement of facts would support the accused's plea of guilty of evading the payment of federal taxes in respect of his 1981 taxation year imposed in respect of unreported income in the amount of $16,477.53 representing a profit received in that year on the sale of a piece of land in Florida and the Court so finds the accused, Frank Fogazzi, guilty.

Count 6(a), as amended, is amended further by the Court pursuant to subsection 601(2) of the Criminal Code by dividing the count into two counts relating separately to the accused, Frank Fogazzi's, 1979 and 1981 taxation years to conform to the evidence and to coincide with the decision of this Court.

The Crown was not able to give me the amount of income tax payable by Frank Fogazzi in respect of his 1979 and 1981 taxation years taking into account the amounts of unreported income dealt with above. The Crown has undertaken to provide me with that information on the date set for sentence and I shall at that time amend the findings of guilt accordingly.

Accused convicted on amended charges.